Sponda Plc FINANCIAL STATEMENTS bulletin 1 January – 31 December 2011
3 February 2012 at 08:30
Sponda Plc financial statements bulletin 1 January – 31 December 2011
Sponda Plcs total revenue was EUR 248.2 million (31 December 2010: EUR 232.1 million). Net operating income after property maintenance costs and direct costs for funds increased by more than 6% and totalled EUR 179.4 (168.7) million in the period. Sponda’s operating profit was EUR 209.6 (216.2) million. As expected, the economic occupancy rate remained at the previous quarter’s level of 88.2%.
Result of operations and financial position 1 January 31 December 2011 (compared with 1 January 31 December 2010)
— Total revenue increased by approximately 7% from the reference period to EUR 248.2 (232.1) million.
— Net operating income increased more than 6% and totalled EUR 179.4 (168.7) million.
— Operating profit was EUR 209.6 (216.2) million. The operating profit includes a fair value change of EUR 39.6 (44.4) million.
— Cash flow from operations per share was EUR 0.37 (0.37).
— The fair value of the investment properties amounted to EUR 3,165.7 (2,870.6) million.
— Net assets per share totalled EUR 4.06 (3.86).
— The economic occupancy rate was 88.2% (88.0%).
— Financial income and expenses amounted to EUR -75.6 (58.5) million. Financial income and expenses includes EUR -11.2 million unrealised change in the fair value of derivatives. Excluding the aforementioned change in fair value, the financial income and expenses was EUR -64.4 million.
— The company provides prospects for 2012 with regard to the development of vacancy rates and the companys net operating income.
Result of operations and financial position 1 October 31 December 2011 (compared with 1 October 31 December 2010)
— Total revenue was EUR 64.9 (58.5) million.
— Net operating income was EUR 47.6 (42.5) million.
— Operating profit was EUR 55.1 (83.0) million. The operating profit includes a fair value change of EUR 6.8 (33.4) million.
— Cash flow from operations per share was EUR 0.10 (0.09).
— Financial income and expenses amounted to EUR -20.4 (-13.5) million. Financial income and expenses includes EUR -3.7 million unrealised change in the fair value of derivatives.
Excluding the aforementioned change in fair value, the financial income and expenses was EUR -16.7 million.
Key figures according to EPRA Best Practices Recommendations
President and CEO Kari Inkinen
The positive atmosphere in the market of the first half of 2011 turned into uncertainty over the development of the economy towards the autumn. For now, this uncertainty has not been reflected in the office sector as increased vacancy rate, but on the other hand, companies do not have much need for additional premises either. The situation is stable also in logistics premises and the decrease of exports is not reflected as a decreased need for facilities so far. Even as our own business does not see signs of weakening as yet, we estimate that the need for business premises will not increase this year.
A total of some 200,000 m² of new office premises will be completed in the Helsinki market by the end of 2012. If the demand stays low, this will create pressure on the occupancy rate of office premises. The rising development of rents will level out during this year. We dont believe that there will be major increases in rents except for raises due to inflation.
The expansion of the Zeppelin shopping centre was completed in the Oulu region in 2011. The project was completed according to schedule and budget. The entire property has been leased.
The construction of the Ratina shopping centre is still waiting for the investment decision. The prolonged uncertain economic situation has also affected the commitment of future tenants at this point. We estimate, however, to be able to start the project this year.
Business conditions – Finland
The uncertainty of the development of the European economy still continues. Its effects are also reflected in the Finnish economy and forecasts concerning it. According to the Ministry of Finances forecast, Finnish GDP is estimated to have grown by some 2.6% in 2011, and the growth is expected to slow down to 0.4% in 2012. The inflation rate in 2011 was approximately 3.5%. In 2012, the inflation is expected to decrease to approximately 2.7%. The fact that the Finnish economy is stable by European standards and its credit rating is the highest possible promotes trust in Finland being a safe investment choice also in the future.
The effects of the uncertainty of the global economy and the diminishing forecasts are also seen in the real estate market. The anticipatory atmosphere of the market has led to caution especially in investment decision-making. According to preliminary data, the transaction volume of 2011 will remain clearly under EUR 2 billion or approximately one quarter lower than the previous year. The positive trend in rents in the office market at the beginning of the year levelled out during the rest of the year. The economy and the new office properties soon to be completed in the Helsinki region create increasing pressures on the vacancy rate. The vacancy rate is likely to increase especially in properties in weaker areas.
The availability of funding for property investments has been becoming increasingly challenging over the last two quarters already, and no change is expected. Good, long-term relations with financiers are the key to securing funding in 2012.
Business conditions – Russia
The Russian GDP is estimated to have grown by 4.4% in 2011 and is expected to continue at the same pace also in 2012. Economic growth is supported particularly by increases in the price of oil and other commodities.
The real estate market has developed positively with the improving economy. The decrease in the vacancy rate of office premises is expected to continue in Moscow in 2012. The vacancy rate of class A office premises is expected to be at the level of 13%. There is a lack of good A class office premises in particular, which has also led to an increase in rents, but the rent level of the peak years of 20072008 is still some way off. According to an estimate by Cushman & Wakefield, present lease agreements for prime properties (A+) in Moscow are agreed at even USD 1,200/m²/year.
The yield requirements for properties in Moscow are declining, the average present yield requirement for class A office properties being approximately 9% on average.
Property transactions were clearly on the rise in 2011 and the volume of transactions doubled from the previous year.
The office properties being built at the moment will be completed in 2012-2013, after which there is no significant construction of new buildings in sight in the Moscow central area. In the future, construction projects will mainly be carried out outside ring 3.
In St. Petersburg, market changes have been moderate and no significant rises in prices and rents have been observed yet. Yield requirements have decreased somewhat from the previous year.
Operations and property assets 1 January – 31 December 2011
Sponda owns, leases and develops business properties in the Helsinki metropolitan area and the largest cities in Finland, and in Russia. Sponda’s operations are organized in four business units: Investment Properties, Property Development, Russia, and Real Estate Funds. The Investment Properties unit is divided into three segments: Office and Retail Properties, Shopping Centres and Logistics Properties. The other segments are Property Development, Russia and Real Estate Funds.
Net operating income from all of Sponda’s property assets totalled EUR 179.4 (168.7) million during 2011. Office and retail premises accounted for 52% of this, shopping centres for 18%, logistics premises for 16%, Russia for 11% and the Real Estate Funds unit for 3%.
On 31 December 2011, Sponda had a total of 200 properties, with an aggregate leasable area of approximately 1.5 million m². Some 51% is office and retail premises, 11% shopping centres and 35% logistics premises. 3% of the leasable area of the properties is located in Russia.
The fair values of Sponda’s investment properties are confirmed as a result of the company’s own cash flow based yield value calculations. The assessment method complies with International Valuation Standards (IVS). The data used in the calculations of fair value is audited, at a minimum, twice annually by external experts to ensure that the parameters and values used in calculations are based on market observations.
At the end of 2011, an external consultant assessed the values of Sponda’s investment properties in Finland and in Russia. The change in the fair value of properties in 2011 was EUR 39.0 (40.5) million for the full year and EUR 7.7 (32.3) million for October-December. The positive change in the value in Finland was mainly due to changes in market rents and changes in yield requirements. The fair value of investment properties is assessed in Finland by Catella Property Oy and in Russia by CB Richard Ellis. The statements of the property assessments conducted in Finland and Russia are available on Spondas website at www.sponda.fi>Investors>Performance.
The changes in Sponda’s investment property assets were as follows:
The economic occupancy rates by type of property and geographical area were as follows:
Sponda expects the vacancy rates of its investment properties to rise slightly in 2012. This view is based on the slowing down of the global economy, the uncertainty of business environment for companies and terminating agreements known to Sponda.
The comparable net operating income (excluding any property disposals) of 2012 is expected to increase moderately compared to 2011. This is based on the property acquisitions and the completed property development projects in 2011.
Risks and uncertainty factors in the near future
Sponda believes that the key risks and uncertainty factors in the current financial period arise from the European economic crisis and relate to a decline in economic occupancy rates and a fall in rental income resulting from the insolvency of tenants.
After the summer, the positive development of the Finnish economy turned into uncertainty dominating the market because of the debt crisis of the European and US public economies. The shrinking of growth may affect the operations of Finnish companies and thereby increase vacancy rates of office properties.
For Sponda’s property development projects, the key risks are related to the degree of success in leasing premises and the potential increase in construction costs. Higher than expected vacancy rates in newly completed business premises would have an impact on the Group’s total vacancy rate and, as a result, have a negative effect on the Group’s net operating income.
The differences between Russian and Finnish legislation and the way the authorities operate in the two countries may cause additional risks for Sponda. The operations in Russia increase Sponda’s foreign exchange risk. Changes in exchange rates may cause exchange rate losses that have a negative impact on the company’s financial result.
Annual General Meeting and dividend
The Board of Directors of Sponda Plc is convening the Annual General Meeting on 20 March 2012 and proposes to the Annual General Meeting that a dividend of EUR 0.16 per share be paid.
Board of Directors
Kari Inkinen, President and CEO, tel. +358 20-431 3311 or +358 400-402 653,
CFO Erik Hjelt, tel. +358 20-431 3318 or +358 400-472 313 and
Pia Arrhenius, SVP, Corporate Communications and IR, tel. +358 20-431 3454 or
+358 40-527 4462.
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